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Voluntary Occupational Pension Schemes - does it pay to save?

Based on the incentives announced during the 2017 budget speech, Parliament enacted rules on 12 September providing incentives for employers with respect to voluntary occupational pension schemes applicable as of 1 January 2017. The general conditions for the applicability of these rules dictate that the individual is registered in Malta for income tax purposes; that the employer (which could be anything from a company to an individual) is a registered payer under the Final Settlement System; and that the employee receives a wage. Individuals benefitting under the Highly Qualified Persons Rules are excluded.

What does this mean for employers?

On a basic level, the scheme provides a two tier benefit for employers. The first is a tax credit of 15% calculated on the contributions made up to a maximum of €150 per employee per year. The second is that the employer may deduct the contributions made against its taxable income up to a maximum of €2,000 per employee per year. Both the tax credit and the deduction are used in the same year that the contributions are paid with a possibility to carry the tax credit over if not completely utilised.

Contributions made to a qualifying retirement scheme (which also includes a long term contract of insurance that fulfils the same conditions) are not considered, for tax purposes, to be a fringe benefit. This effectively means that employees are not liable to pay any tax on the contribution. On the contrary, employees who also contribute to the scheme together with their employers are eligible to claim an income tax credit of 15% per year on the value of their contribution up to a maximum of €150.

What are the advantages?

Such schemes provide employers with the tools to retain talent while deriving a material benefit at the same time. While it may still be too early to tell, such a novel concept under Maltese law should have the effect of separating those employers who embrace it, making them more attractive to employees.

Does this replace the state pension?

Not at this point in time. The voluntary scheme currently operates in parallel with the state pension.

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